Excuse the cheesy photo, but as I mentioned, we are trying to get out of debt and it was while researching ways and means to do this, we came across Dave Ramsey and he has definitely become my HERO!
His Seven Baby Steps method is sooooo simple to use, it’s mad!
The seven steps are laid out as an easy route to follow and as you go, you get more and more financially free. When I say free I mean it, as a weight has literally been lifted from us. We don’t care nearly as much about money any more. This is because we’re not worried about where the next £ is coming from as we work out our budget and stick to our planned spending, we look forward to paying extra off our debts and we seem to have more money too. It definitely doesn’t rule our life in the same way it did when we had no control. It truly is freedom!
“We buy things we don’t need with money we don’t have to impress people we don’t like.”
― Dave Ramsey, The Total Money Makeover: A Proven Plan for Financial Fitness
So I thought what would be the best thing, but to do a course of posts going through each of the steps to explain how I see them so that you too can
also join the cult, I mean have financial freedom ;).
QUICK NOTE: This method is not just for debt! This can help in all sorts of ways to help people feel secure. It can be used to build a safety net to cover those uncertainties, to help you pay off your mortgage, save for uni, college or retirement or maybe just enjoy what you have and give to others if you desire. The possibilities are endless.
Firstly, it is probably wise to have an idea on some of the terms that are used by people who follow the DR method. I will give a fuller explanation of some of the bigger topics, such as the baby steps and debt snowball, etc., but here are the basics:
- Baby Step (BS) – this is usually followed by a number from 0 to 7 (as shown below) and is the order in which you can achieve financial freedom following this method – you just move up the numbers as you complete each step.
- Gazelle / Gazelle Intense – this is from a bible quote (Proverbs 6:1-7) and refers to working with such intensity that you go crazy to achieve it, like you are a gazelle and you go crazy to get away from the cheetah, you will run so fast to save your life – Hear it from Dave first hand here.
- Envelope System – with this system, you use cash for various categories in your budget and you keep it in an envelope so you can see easily how much you have left in that particular budget. Used for things like groceries or eating out, you have the cash, when it’s gone, you don’t shop any more until the next time you fill your envelope from your budget. A really good explanation of this is from Rachel Cruze, which you can listen to here.
- Scorched Earth – this is about going further than being gazelle intense – as Dave says, ‘live on beans and rice, rice and beans as your variable diet’, cutting everything and moving through your debt so fast you scorch the earth behind you. Obviously eating beans and rice every night is not good for you and it is a metaphor for no takeaways, bulking up meals where you can, buying cheaper brands, etc., whilst still eating healthy and not harming yourself.
- Debt Snowball – This is paying your debts off in order of smallest first – to get the ball rolling, chuck everything you have at this, then when that is paid off, add the monthly payment you now have free to the next debt in your list, and so on and so on, the snowball builds up momentum and gets rid of those debts quicker (and you will feel great each time those small debts disappear).
- Emergency Fund – This is actually baby step 1 – an amount of money (£500-£1,000 depending on your income) that will help you out should something happen – your boiler blows up or your car needs an urgent repair. It’s there to stop you going back into debt because of the emergency and helps keep ‘Murphy’ at bay (from ‘Murphy’s Law’ – anything that can go wrong, will go wrong!).
- Sinking Funds – These need a WAY more detailed explanation than what I will put here, but basically, a sinking fund is a savings that you put into regularly to build up for a specific thing, for instance, £10 a week for Christmas so you will have £500 when it comes around, £40 a month for car maintenance, so you are ready for your annual MOT. They are things that come up regularly within a 1-12 month interval that you need to plan for
There are other terms that are noteworthy, but this will get you started.
My next post will be about BS0 – making sure your four walls are secure before you do anything else.
Please like my post if you have found it useful and follow me to get updates as I post. I will also be posting about our home renovations, more about meal planning and batch cooking and anything else that I think may be useful.
Until then, bye for now,